Western Governors University
State Farm Risk Register
State Farm has chosen to further to its already-existing operations in Canada, with the result of capturing millions of new customers. These customers will require both brick-and-mortar and telephonic support. Brick-and-mortar locations number in the thousands and continue to grow. With the acquisition of a greater number of customers, these locations will be able to absorb and support a respectable number of these new customers. Yet internal analyses indicate that the younger customer base, that is, customers in their 20s and 30s, prefer virtual or telephonic interactions and will actively shun brick-and-mortar locations. It is these customers who expect to receive timely answers to their questions telephonically. This customer demand is the impetus behind the company’s need to construct a new call center in Canada, specifically in Quebec.
Through a qualitative analysis, State Farm has identified eight risks:
1. Natural disaster,
2. Canadian government collapse,
3. Environmental clearance for call-center construction,
4. Canadian permit delays,
5. Differing site conditions,
6. Substantial currency fluctuations,
7. Substantially volatile oil prices, and
8. Labor strike.
Each risk will be treated further below.
Just as with other countries, Canada experiences natural disasters that are disruptive to both individual and corporate life. With the establishment of a call-center presence in the country, this naturally occurring phenomenon must be considered.
According to Public Safety Canada, which maintains a database of all natural disasters throughout the world, from 1950 to 2000, Canada has experienced 481 natural disasters, inclusive of floods, earthquakes, and tornadoes (Public Saftey Canada, 2012). These natural disasters have a twofold effect on State Farm’s call-center presence in the country:
1. Physical damage to call center, reducing likelihood of meeting customer-service needs 2. Increased exposure to claims from affected customers
If physical damage to the call center occurred due to an environmental phenomenon, customer support would greatly falter, since calls and service requests would not be answered in a timely fashion. This issue would also present an impressive burden to brick-and-mortar employees who would be required to absorb the workload until the call center achieved homeostasis. This risk is an obvious threat.
Natural disasters also will result in elevated claim submissions from customers. State Farm would be required to compensate for damaged homes and cars, thereby increasing State Farm’s exposure substantially.
This risk is deemed a medium threat with a very high influence on company profit maximization.
Fortunately, the threat can be mitigated. Increased costs of doing business engendered by a natural disaster could be offset by a gradated approach to premium increases in the country. Premiums would increase 15 percent during a three-year period, that is, five percent per year. This approach would gird profit maximization through bolstering the company’s coffers. (Possible premium increases in the U.S. could also be considered but would have to be approached sensitively.)
The executive leadership team and underwriting team are responsible for the management of this threat. Executive leadership is responsible for setting appropriate strategic policies in preparation for the risk, and underwriting is responsible for premium-increase implantation and monitoring company coffers.
This risk will be subject to quarterly evaluations.
Canadian Government Collapse
All countries are subject to the total failure of government and resultant collapse of society. The likelihood, however, varies among countries surveyed. The source of collapse always is because of the government and its inability to...